Sterling’s Performance Against the Dollar Faces Potential Jolt
Sterling’s Current Situation
Sterling has been trading in a narrow range against the dollar since mid-November, with low volatility levels reminiscent of pre-pandemic times in early 2020. However, the upcoming Spring Budget by Jeremy Hunt could shake things up.
Potential Impact of the Spring Budget
Expectations for significant tax cuts by the ruling Conservative Party might be tempered due to limited fiscal space following the recession in late 2023 and the recent market adjustments in borrowing rates. Hunt’s cautious approach is influenced by past turmoil caused by unfunded tax cuts.
Analysts’ Perspectives
Analysts acknowledge the possibility of surprises in Hunt’s budget announcement, although they anticipate a moderate tax relief package that could support the pound without triggering market turmoil. The fiscal constraints make it unlikely for the budget to drastically alter the growth or inflation outlook.
Market Expectations and Comparisons
Market projections hint at the Bank of England beginning rate cuts in August, with expectations of two to three quarter-point cuts in 2024. In contrast, the Federal Reserve and European Central Bank are expected to deliver more aggressive easing measures. Despite this, higher British interest rates could benefit sterling bulls.
External Factors
Various events, including Jerome Powell’s congressional testimony, the ECB policy decision, and U.S. payroll data release, could impact sterling’s performance. Sterling’s resilience against the dollar is attributed to the UK economy’s robust growth amidst the Fed’s tightening policies.
Overall, the Spring Budget and external economic factors are likely to influence sterling’s movements in the coming days, providing opportunities for traders and investors to navigate the currency market with caution and foresight.
